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Increased loan recovery, relaxed rules cut defaults

Rejaul Karim Byron
Default loans dropped 28.45 percent last quarter on the back of increased cash recovery, loan write-offs and liberal rescheduling rules in the wake of political unrest that hurt business.
As of December 31 last year, the banking sector's total classified loans stood at Tk 40,583 crore, down fromTk 56,720 crore on September 30, 2013, according to central bank statistics. Of the 56 banks, 40 managed to cut down their default loans.
Bangladesh Bank in December last year instructed banks to relax loan rescheduling rules for businesses affected by political instability, which the banks took full advantage of to bring down their classified loan portfolios, SM Aminur Rahman, managing director of Janata Bank, toldThe Daily Star.
If the central bank had not given the opportunity, the banks would have to file cases against their borrowers to realise the loans, said a high official of a private bank.
"Realising loans by lodging cases against defaulters is difficult. On the other hand, it would have been injustice to the borrowers," he added.
Helal Ahmed Chowdhury, managing director of Pubali Bank, echoed the same.
The bank rescheduled loans of those who defaulted for genuine reasons, in exchange for 3-5 percent downpayment, compared with 10 percent earlier.
"Our intention is to keep the businesses afloat. But habitual defaulters got no mercy from us," said Chowdhury, also the vice-chairman of Association of Bankers, Bangladesh.
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Chowdhury also said lower down-payment for loan rescheduling helped the banks increase cash recovery.
Rahman of Janata Bank however said the bank's loan recovery also increased last quarter, which also helped curtail the default loan portfolio by 45.58 percent to Tk 2,605 crore.
The bank recovered Tk 2,713 crore last year, compared to Tk 561 crore in 2012. Janata's cash recovery shot up 186 percent to Tk 705 crore in 2013 from the previous year. It rescheduled loans of Tk 1,063 crore, wrote offTk 890 crore and waived interest worth Tk 45 crore in 2013, which was Tk 70 crore, Tk 209 crore and Tk 36 crore respectively in the preceding year.
Sonali Bank too saw a big fall in its classified loans last quarter. In 2013, Sonali's total recovery increased 511 percent to Tk 5,176 crore. The bank's cash recovery alone wasTk 1,464 crore, 272 percent higher than in 2012.
The bank showed recovery of Tk 3,712 crore through loan rescheduling, writing off loan and interest waiver which was only Tk 452 crore in 2012.
Sonali Bank managing director Pradip Kumar Dutta said the bank conducted a special recovery drive in 2013 which helped increase their loan recovery.
In case of foreign banks, the scenario however was different. Except the National Bank of Pakistan, the default loans of most of the foreign banks shot up. The default loan of Standard Chartered, the largest foreign bank, increased 35.2 percent last quarter to Tk568 crore.